Succession Planning in the Closely Held Business

Abstract

Succession planning should not be viewed as an issue that arises only when the retirement of a CEO or another key executive is imminent. Departures of senior personnel occur for a variety of reasons and are often unexpected. Succession planning for a change in the executives of a closely held business presents both income tax and transfer tax issues. Recent tax law changes have reduced the tax rate on dividends and can affect the cash flow of a company. Other tax issues will affect a company, the executives who are leaving, and the new leadership. Stock options, the type of corporation setup, and other factors can create advantages or disadvantages for a company. In closely held businesses, many executives are family members. This creates additional estateplanning scenarios. With proper planning and forethought, succession planning can ensure a smooth transition.